Sumitomo to pick up 4.5% in Kotak Bank for Rs 1.3K crore

MUMBAI: Japan-based Sumitomo Mitsui Banking Corporation will buy 4.5% in Kotak Mahindra Bank for Rs 1,366 crore through a preferential allotment. The transaction will reduce the combined shareholding of the promoters — the Kotak and Mahindra families — in the bank from 51% to a little over 49%.

The preferential allotment, which is subject to Reserve Bank of India (RBI) clearance, will be done at Rs 833 per share.

“The capital will be used for expanding our insurance and banking business,” Uday Kotak, vice chairman and managing director Kotak Bank told ET, adding that his bank was open to acquisitions as there were opportunities in the brokerage, insurance and banking sector Sumitomo Mitsui Banking Corporation (SMBC) has also signed an agreement with Kotak Mahindra Bank for a possible private equity fund for infrastructure sector, debt syndication, raising offshore money through Kotak’s mutual fund and cross border investments.

On further dilution of equity stake, Mr Kotak said that promoters do not need to dilute any more stake. He said when they were issued the banking licence in 2002, the Reserve Bank of India (RBI) had said that the promoter holding should not be more than 49% and the same applied to them.

In 2004, RBI said that no single entity or group could hold more than 10% in a bank. “The 2004 guideline said that the licensing condition (of new private banks) be kept in mind and secondly, more than 10% is permitted, provided some conditions are met. Take the two together and we are not mandated to lower the stake,” said Mr Kotak.

Following the dilution of equity, shareholding of private equity firm Warburg Pincus will also come down to 9% from 10%. Warburg Pincus holds a stake in the bank through foreign institutional investors — Melany Holdings and Madison Holding, with 4.91% each.

Following the preferential investment, the capital adequacy ratio (CAR) will increase to 24% from 18%, giving Kotak Bank enormous scope to increase its loan book. On the stake sale to SMBC, Mr Kotak said it made business and strategic sense, “Japan is a high-savings country looking for growth and Indian is a high- growth country looking for savings.”